Declining Record Sales Who Is to Blame free essay sample

For several years now, sales of new and popular music have steadily declined and show no sign of changing. The record companies are quick to blame the growing popularity of the Internet; music is being traded in a digital form online, often anonymously, with the use of file-sharing programs such as Morpheme, Aziza, and Mimes, to name a few. The ARIA (Recording Industry Association of America) succeeded In disbanding the pioneer Internet file- sharing program, Anapest, but is facing confrontation with similar programs that are escaping American copyright laws.While there is an obvious connection between declining popular music sales and increasing file sharing, there is more going on than the ARIA wants to admit. I will show that the recording companies are overpricing their products, and not sufficiently using the Internet as an opportunity to market and sell their products. I shall begin by describing in greater detail the problem that the recording companies are facing, as well as the growing epidemic of online music trading. From there, I will show the correlation between the two and describe the other factors affecting record sales, and how these trends could be earned around to help the industry. The Record Industry is in trouble, says Jan S. Winner in an editorial appearing in a recent Issue of Rolling Stone Magazine. Album sales are now down almost 20% from two years ago, and the record business Is facing the biggest retail slide since the Great Depression (Winner). People are buying less and less products released by the recording companies. Nobody doubts that the music business is in trouble.Last year, global sales of CDC were down by 5% from 2000, the first fall since the format was launched (ANAPEST R. I. P). The Nielsen Sounds, used to report final sales to consumers, revealed some of Its figures In a September 2002 Issue of Billboard Magazine. Nielsen Sounds reports that overall music sales compared with the year before were off by 12. 6%;while album sales were off by 9. 8%. Total first-half units sold fell to 317. 7 million units from 363. 4 million; the number of albums sold slipped to 311. 1 million units from 344. 8 million [l an 8. 1% drop (Gritty).Even the number of albums that become hits is decreasing. At mid- year 2001, 37 titles had sold more than 1 million units each; halfway through this ear, only 21 titles had sold that many, according to Nielsen Sounds (Gritty). Even sales figures for singles are down. Sales are off by 63. 9à CO7 million units were sold in the first six months of 2002 vsvs.18. 6 million unites in the same period in 2001 (GaGritty Not only are the companies themselves facing hard times, but the retail stores that sell music are also suffering their own losses. MuMusicianstores, the largest music retailer in the U.S. coContinueso report losses and declining sasalesroomhe third quarter, the Minnetonka, MiMin-based company reports a new loss of $16. miMillioncompared with a loss last year of $144. 6 million (Jeffrey). The company was even forced to close some of Its stores. At quarters end, MuMusiciansperated 1476 ststoresuring the quarter, the company closed the following: Nine Sam Goody/MuMusicianstwo Media plays, one On Cud, and on U. K. stStore(Jeffrey). This problem hits home in entertainment products like CDCDCnd audissociateswas forced to close because of insufficient revenues.Inhabitants of VeVermilionre now forced to travel anywhere from 30 to 60 miles away to purchase music offline. While this town obviously reflects ereremall percentage of consumers, the lack of immediately available music products certainly will not help the declining record sales. The stocks of music retailing companies are also falling. Publicly owned music- retail chains have lost about $800 million in share-holder value over the past few {ears, as continuing price ward have caused investors to flee these stocks and drive down their value GeJeffreyThis has had a much larger impact on retails than one may think. Big discount chains like WaWallart and K-Mart have seen their stocks tumble or remain stagnant in recent years, while others, like BrBeardlessave filed for aninerrancyrotection GeJeffrey A recent article in Rolling Stone reviews the year 2002 in terms of the music business. At the close of a dismal year for the music industry, sales were down thirteen percent, layoffs and roster cuts were imminent at many labels, and major record-store chains were struggling to survive (ElLilies20sa sssusic, 11).The following graph from that article illustrates the difference in top selling albums of recent years. 2000 Top Selling Albums 2002 Top Selling Albums 0 No Strings Attached 3. 9 million EmMine The EmMinehow 7. 4 million EmMine The Marshall MaMattersPALP 9 million NeNewly NeMelville. 8 million 3rrewrittenpears 0 Oops! 01 Did it Again 7. 9 million AvAprilaLeaving Let Go 3. 9 million Creed 0 Human Clay 5. 6 million Dixie Chicks 0 Home 3. 4 million rhereifference is evident. At the number one spot, EmMineold 2 million less copies n 2002 than ONOnionsid in the same slot only two years earlier.EmAminesop selling album in 2002 was outsold by the top three selling albums of 2000, and the difference between the number one and the number two selling albums in 2002 is nearly 3 million, compared to 20assessop two spread of two million. This chart also xhexhibitsn artists staying power. EmMines the only artist within the top four for both years shown. This illustrates how inconsistent the market is at creating good Why is the recording industry facing such hardships? The RIARIAs quick to point its finger at the growing popularity of Internet file sharing. What kind of music would people share online?Music enthusiasts would typically share CDCDChat were recently recorded and released in the more popular genres. The highest offender of online music sharing is the 18-to-24-year-old cacatastrophescomputer savvy user (Thompson, c-336). Because of this audience, other genres of music such as classical and Jazz were much less affected. In the beginning, there was NaAnapestNaAnapestas the premiere source of illegal music downloading in the Internet. Anyone in the world with an Internet connection can download NaAnapestor free. From there, the user would designate which files he or she is willing to OsShareWhen running NaAnapestall the user had to do was type in what song or artist they were looking for, much like an online search engine works for web pages. NaAnapestould then search through the OsSharedfolders of other users hat were currently using the program. In this manner, without any formal communication or consent (outside of the license agreement stated during installation), users had access to the OsSharedfolders of other users and could transfer any files in the OsSharedfolders back and forth with extreme ease. People would typically take their new CDCDCnd convert them in to mpMPHormat. From there they could be downloaded from any other computer using NaAnapestPeople suddenly had free access to virtually any popular music desired, without any formal consent from the music recording industry or the artists having their files shared. As one could predict, the RIARIAas quick to accuse NaAnapestf violating this countrys copyright laws. NaAnapestas taken to court and eventually ordered to shut down. When an appeals court issued an order last July forcing NaAnapesto shut down, there was a sigh of relief throughout the recording industry. It was the day free music died (Warner).The death of NaAnapestas not the death of Internet file sharing. Whats taken its place is a lot scarier for the music inindustryserhaps unstoppable. Theyre called file-sharing services, or P2POPpeer-to-peer) nenetworkedhe three most popular nenewsaAzizaGrGrosserand MoAmorphousness combined 70 million active users, compared with only 20 million for NaAnapestn its heyday (Warner). In America, the number of unique users of KaAzizaa NaAnapestlone, shot up by 1,491% in the 12 months to JuJunctureumber of users in America of KaAzizaMoMorphemend AuAdditionallyall file-sharing services, reached 14. 4mMmmore than 13. usUsingaAnapestt its peak (NAANAPEST. I. P. ). Hundreds of thousands of new users Join the P2POParty every weweeklieshose networks somehow get shut down, others will pop up in their place. 0TTheseetworks are Just tools to get what I want, a KaAzizaser named ErErikiidolshe record industry breaks these tools, you go out and find another' (Warner). The industry will have trouble shutting down these NaAnapestlones. The creators of these P2POPetworks have little control over what they created and cant tell whos downloading what file, whether its an EmMineong or Grandmas recipe for blueberry pie (Warner).The creators use this as an excuse to escape liability charges, simply because they cannot see or control the illegal activity. In a recent court ruling, it was proved that there was no evidence that GrGrossernd amnameuling concluded overall that companies behind internet services for sharing music and movies are not to blame for any illegal copying conducted by the services users (VeVega The new P2Pepsre also completely decentralized . One of the two creators of KaAzizaNiNikolaseCementerssays, the only way the system can be shut down is if every user elected to disable his program (Warner). ShShermanthe company formed by the creators of KaAzizaescapes copyright laws by locating itself on a group of islands in the South Pacific called VaVauntwhile GrGrossers located in a 26-square-mile tourist paradise in the West Indies called Nevis. Because of the decentralization of these programs, as well as their overseas headquarters, the RIARIAs forced to admit that their claims against KaAzizaGrGrosserand MoMorphemeare not as strong as those against NaAnapest (Warner). What is available on these P2POPetworks? The answer is simple: virtually everything in visual and audio entertainment.MeMetallicirst started filing suit against NaAnapesthen drummer Lars UlLarchesis bands track 01 Disappear pop up on NaAnapestFor one thing, the sosingsonget to be released. For another, it wawasntven finished (ElLilies21). Examples like this are not hard to find on present day P2PepsIf one searches long enough, hidden tracks, unreleased songs, unfinished tracks and rare live recordings may be found. Its not Just music being zapped across the Internet anymore. The new NaAnapestsouse vivideotapessoftware programs, and movies, including ones not playing in theaters (Warner).Any type of computer software, whether it is an expensive program, the latest movie releases, or the number one song in the country, can be and is being shared on P2PepsThe Recording Industry Association of America filed suit against NaAnapestn 2000 ndNDventually won. NaAnapestried selling its assets to Bertelsmann in an attempt to rerelianceaAnapests a legitimate business, but the courts would not allow it. The deal, ruled the Judge, was not in the best interests of NaAnapestsreditors (NaAnapest. I. p.P). Of course, letting NaAnapestnd other P2Pepsurvive certainly is not in the best interests of the recording industry. To the big record labels, NaAnapestasnt Just a nuisance; it was their worst ninightmaresnline equivalent to everyone storming into record stores and making off with armfuls of CDCDC(Warner). The industry claims hat instead of buying music, people are downloading the music for free. The RIARIAtates, in an instructional booklet handed out to companies cited for using office computers to share mpampsthat downloading copyrighted files OiOSIot OsSharing110ths theft (Cohen, 21). The industry has a point. Consumers are downloading more music and purchasing less at a rate of two to one (wire services), says the RIARIA/p>P2Pepsre downloaded for free, and people can make available and download files (or songs, as is relevant) with no purchase necessary. All it takes is one person to record an album n mpMPHormat onto their computer and make display it on KaAzizaFrom there, the so ng is up for the taking; and the more users that download any particular song, the easier it is to find and download. In some cases, entire albums are downloaded, then copied onto a blank CD and sold on the streets for a price significantly less than the price offered by the recording industry. For the first time blank CD sales could certainly be linked to an increased amount of bootlegging. Peter D. Hart Research Associates conducted a survey in conjunction with the RIARIAhat revealed lots of interesting information concerning how some music fans cqacquireheir music. 860 music consumers ages 12 to 54 were surveyed. The study showed that 63% of consumers with an Internet connection acquired at least one burned CD. The study also concluded that 35% of young music consumers with Internet connections say the first thing they do after hearing a song they like by an unfamiliar artist is download it for free form a file-sharing service. By contrast, only 10% of the same group say the first thing they do after they hear a song they like by an unfamiliar artist is buy the album (GaGritty The RIARIAs doing anything possible to stop internet file sharing. If you dont bring awsuitsthen thousands more of these networks will develop rather than the handful that pop up periodically (Warner) claims RIARIAeneral counsel Cary Sherman. They have already filed suit against NiNikolaseCementersnd JaJanisrits, the two creators of KaAzizaas well as the companies that own KaAzizaGrGrosserand MoMorpheme/p>However, because of reasons formerly stated (offshore incorporation, little control over online traffic), the RIAriasclaims against KaAzizaGrGrosserand MoMorehouseot as strong as those against NaAnapest (Warner). The RIARIAs even considering less conservative means of halting Internet file haring: The RIARIAs cocountersigningndividuals who share large numbers of files on KaAzizaGrGrosseror MoAmorphousnessss a time of crisis for the m usic industry, and the RIARIAs trying to fight a battle on multiple fronts,' (Warner).In its desperation, the music industry is using any means possible to catch people exploiting P2PepsVerizon Communications, an Internet service provider, must supply the identity of a consumer responsible for downloading 600 songs from the file-sharing network KaAzizao the Recording Industry Association of America (wire services). The RIARIAas tadartedissuing letters of warning pertaining to copyright infringement to universities and with the pursuit of individual pirates, as in the Verizon case (wire services).The industry has confronted the P2POPompanies, Internet Service Providers 11asps and is now setting their sights on the individual P2POPsers with threats of anywhere from $750 to $1 50,000 per song for unlicensed swsuperintendencesould also serve up to five years of Jail time (Cohen, 21). Confronting individual P2POPsers, however, is quite unlikely, as well as fruitless. Short of suing 70 million-plus people r encrypting every CD and DVD sold (an unlikely scenario), its hard to imagine how to stop it (Warner).The industry also has the United States Congress discussing possible means of punishment for individual users. More than a dozen members of Congress have urged Attorney General John Ashcroft to prosecute those who distribute entertainment files on peer-to-peer seserviceberryJohn CaGrotesquenesshat OiItde good idea to go out and actually bust a couple of these college kids' (Cohen, 21). Finding the individuals responsible for egregious file sharing is proving to be more and more difficult.Revamps of file-trading systems such as FrEfferentan potentially hide users unique Internet addresses (Cohen, 22). While the RIARIAon in their case against Verizon, obtaining information on individuals using a program such as the control what people are doing on the Internet, yo u have to either break the Internet or create a system where everyone is monitored all the time (Cohen, 22). The court battles between the RIARIAnd various companies and individuals responsible for Internet file sharing have been going on for a few years now, and show no sign of stopping.The RIARIAs losing money fast and is determined to take onnonusersway from their computers and back into the record stores. But this situation is more than Just a quarrel between the RIARIAnd their nemesis P2POPrograms. Music consumers believe that they are being charged too much for the products produced by the recording industry. Because of this, consumers are flocking to their personal computers to avoid being overcharged for music that they feel is hardly worth buying in the first place. In an August 2001 issue of Electronic Musician, article writer Michael A.AcCanononducted an interview with three recording industry executives to discuss the different views of record distribution. Of those interviewed was KoGoofyrown, co-owner of an inIndiesabel SiSambausic Records as well as a musician and songwriter in Oakland, California. When asked about the death of retail sales due to increased use of the Internet to acquire music, she replied l think that retail sales have slowed down a bit due to the Internet, but I think its mostly because of the outrageous prices that CDCDCell for now-$17 to $18!I know plenty of people who Just wont go out and buy music the way they used to because it costs so much (AcCanon116). This fact is truer than ever in VeVermilionSouth Dakota, where On Cue used to omnominatehe music and entertainment sales. While in business, On Cue would sell CDCDCor upwards of $18. Just recently, a locally owned music and entertainment store called Last Stop CD Shop opened in downtown VeVermilionEverything for sale is second hand, and no individual CD costs more than $8.The selection may not be stellar, but the price is right. An almost mint condition CD c ells at the Last Stop CD Shop for $10 less than a new CD at On Cue or any other franchise music retailer. $18 is 4 hours or work at minimum wage for the average college student in VeVermilionoften an entire shift. Now, a minimum wage paid student at the University of South Dakota can buy two CDCDCor that same amount of work. This fact does not make big retail stores with their even bigger prices seem desirable.What about other formats of music? Also under scrutiny is why CDCDCost so much more than cassettes-most of which carry a $10. 98 list price-even though there isnt much difference in manufacturing costs between the two formats (BoBolter16). The recording costs certainly should not differ from CD to tape, and distribution costs (as Nell as packaging) should also be relatively similar. Given these observations, one egeggingo wonder why a CD costs $7-$8 more than a cassette. This much is certain: Labels have made handsome profits from the pricey compact-disc format and have been reluctant to translate those profits into savings for consumers states Eric BoBoltern a February 1997 issue of Rolling Stone, years before online music trading became a significant problem for the recording industry. Often there are explanations for price inincoherencesone seems to be missing (BoBolter16). His article tells the story of DiDiscordecords, an inIndiesabel that carries a suggested retail price of only $11 per CD.Were not a profit-oriented president of distribution at DiDiscordecords. Most retailers buy CDCDCrom record company distributors for $10. 70 to $1 1. 30, when those same CDCDCave a suggested retail price of $16. 98 to $17. 98. Thats a profit of $6 to the retailers, or 35%. Some retailers, like Best Buy and LeLecherwill sell hit albums for $10 or $11 to attract consumers to the more expensive items like computers and stereos (BoBolter17). CD prices appear so outrageous that in 1997, a class action lawsuit was filed against the six major recording companies.The record labels were being accused of ixaxingrices of CDCDCand that the consumers who were possibly overcharged should be reimbursed. Of course, the recording companies are reluctant to divulge information detailing their profits. The industry has done a terrible Job explaining [high costs] to coconsumersusiness wants to open themselves up and explain line by line how they make money (BoBolter16). To understand how these companies make their money, one must understand NhNatoney the companies spend on their products. Labels claim that the majority of their expenses lies in marketing and promotion.According to Michael Powers, VPUPf atcantonalromotion at Mercury Records, labels spend about $1 ,500-$1 ,700 on a single per ststationedotal cost is $300,000-$340-000 Just to get [the single] into the hands of the [radio] industry and let them know we have something (Stark, 84). Powers claims that the costs include about $500 to physically make and reproduce the record, $12,000 to $36,000 for independent promotion, $25,000 for trade- publication advertising, and several other factors that bring the total cost for each project to $1 (Stark, 84).The cost of making an album is so high that some record companies are oneng enderingutting singles deals; this is where a new artist is signed on to produce only a single instead of an entire album. This technique saves money and serves as a means of testing out new acts to see how they will sell. Many labels are considering making more singles deals. Its understandable given the cost of business and the current slowing down of the format (Stark, The Return, 79) says CEO of Atlantic Records Nashville operation, Berry CoCobber/p>When a label spends money on recording, wardrobe, a music video, launching a radio act and a tour, its really easy o spend half a million dollars, and the problem is now the sales arent what they used to be adds CoCobberStark, The Return, 79). The traditional business model of the recording industry follows a value chain. rhereirst step is the Artists and Repertoire development. This stage includes developing the music and the musicians, as well as establishing concerts, tours, and merchandising. The second step is the actual recording process, where most expenses revolve around equipment and mixing.After recording is manufacturing, NhInchakes up approximately 10% of the entire production cost. The fourth step is marketing, which constitutes around 30% of the entire cost. This 30% comes from television and print advertising, as well as music videos and public relations tours. Distribution makes up the most expensive step in the value chain, taking up 40% of the expenses. This includes packaging and transport of CDCDCwhich costs so much because of the sparse locality of the manufacturing facilities and the large density of retailers.The sixth and final step in the value chain is retailing, where the album The value chain has some inherent problems, however, that quite possibly onnutriento the seemingly extreme cost of making a record in todays market. Less than $1, on average, of a $16 CD made it back to the artist (Thompson, 333). Where does the rest of the money go? Why does the artist receive less than 6% of the profits? First off, the recording cost is often inflated. Nirvana, one of the top selling artists of the early 90assrecorded their album Bleach for only $600 (Online, VHVHFGreen Days album DoDioxide which has sold over 9 million copies to day, was recorded for $10,000, which is said to be a conservative budget for recording. If the album cost so ittitleo record, why are they sold for upwards of $20? According to the value chain, manufacturing takes up around 10% of the overall costs. Yet, according to BoBlottersrticle concerning CD overpricing, the basic materials of a CD cost roughly $. 90 per disc 0 approximately 60 cents for the actual CD, 20 cents for the Jewel box and 10 cents for the paper.Consumers even question the validity of the initial stage, the artists and repertoire development. Avid music listeners were disappointed with the material that was released in 2002. There was a definite lack of quality releases and imaginative arracketingast year says senior vice president of product and marketing for Virgin MeMegastarsDave Adler (ElLilies20sasssusic, 12). After considering all of these factors, I will return to the case concerning fixed- prices for CDCDC/p>The lawsuit was brought by 41 state attorneys general and was settled out of court by the defendants in September of 2002 to avoid a lengthy battle. The recording labels were found guilty of fixing CD prices and were forced to pay $143 million in punitive damages. The music was returned to the average consumer, granted that they met a three part criteria (basically determining whether or not the onnonuserought a CD in the last 7 years) and filed for this reimbursement before March 3, 2003. Even dead people were entitled to their share, which consisted of $20 :Gordon).The record companies were obviously reluctant to hand over this cash, given the date requirement for the reimbursement, as well as the extreme difficulty of reading the information on the website concerning the lawsuit. Given the cost issues, the RIARIAas a lot more to worry about than Just Internet file sharing progra ms. How can the industry turn around and get out of its sales slump? Firstly, the industry needs to stop seeing their consumers as enemies. The industry isnt putting up much of a fgfightn perhaps the most important front: creating Internet services that people actually like for legitimately licensed music (Warner).Theyre more willing to bust individuals using file sharing programs than embrace the Internet as a means of advertising and selling their products. They hastily accuse their consumers of taking advantage of the Internet and not buying albums all together. It is no secret that the music industry had been diligently fighting music piracy in the United States and around the world, but its slow pace in mbembracingew technologies and streamlining its own industry was the reason why the problem became so prevalent (Thompson, c-340).Market Data, the RIAriaslectronic music market research newsletter contains a survey targeting P2POPsers NiIntroit word mentioning the potential for a new online market: Of all the specific used these services, having access to a large selection and variety of artists and titles ranked hi ghest (87%), followed by the capability to download files easily and quickly 184%), the ability to download individual songs (83%), a convenient search feature 181 %) and the ability to get music for free (79%) (Market Data). These fgfiguresay be factual, but they fail to question the consumers willingness to take part in an online music market.In a similar survey issued by the digital music distribution industry, 80% of those surveyed said that they would buy more music if they had immediate information about the artist and title of the song; over 60% NoMouldurchase more music if they could buy a song as soon as they hear it; greater than 80% wanted to buy songs individually, and of those who usually listened to music on the Internet, one-third were more likely to purchase CDCDCn stores after hearing the music online (Thompson, c-324 0 c-325). In another study done by the lulupinesommunications Inc. roRovedhat users of NaAnapestoftware were actually more likely to buy more records than non-NaAnapestsers. Their studies showed that NaAnapestsage is one of the strongest determinants of increased music buying (Thompson, c-336). Secondly, the RIARIAeeds to embrace the latest trend in entertainment shopping NiNinthhe use of dot cocomesIn 1999, the global music market was worth $38. 5 billion. Amazon. coComeported overall sales of $1. 3 billion in the same year. The projected music sales in 2001 for Amazon. coComas $3 billion (Thompson, c-330).This means of selling entertainment products online can serve as a significant advantage for the recording industry. Online marketing eliminates the high distribution cost presented by the value chain, which accounts for 40% of the production expenses. A CD that Nas once listed for $17 now has no reason to sell for any more than $10. 20. Mike Robertson, CEO of MPMPHcoComddressed the topic of online music selling at the New fork Music and Internet Expo: When you look at record labels, they were dropping artists that were selling 200,000 CDCDCr less.To the RIAriasredit, they are slowly emerging with online alternatives to illegal downloading. Presently, music retailers are working on a program to supplement ooorales called Echo, a service formed to sell downloads through stores and official plan on licensing music from the big record labels. No prices have yet been set :ElLiliesPay for Play). The recording industry is also in talks with Apple to develop a new music downloading program that would allow Apple iPpodsers to buy songs from all five of the major labels.This program would sell songs for approximately $1 each and help lure people away from P2Pepsy offering more comprehensive, reliable selections of music. The songs would be able to be recorded to CDCDCbut the files would be roretortedrom wholesale copying tha nks to digital coding (ElLiliesPay for Play). This program is now available as an online shop that Just recently premiered called the iTtunesusic Store. Entire albums can be downloaded for $10, and individual songs are sold for $. 99.Over 200,000 titles are available for purchase, and many more are on the way (CrScroll The recording industry certainly has some problems to deal with in the coming [ears. Internet file sharing programs show no sign of becoming less popular, although the RIARIAas yet to release a legitimate program displaying the same election and convenience of P2PepsBecause of consumers tendency to download single songs by many varying artists, many may wonder if increased Internet use will eventually exterminate the record album from existence.Personally, I do not foresee the death of CDCDCnd albums as a product. The MPMPHormat is not quite CD quality, and the singles that are typically downloaded by consumers do not always reflect the talent or best product of a certain performer. Singles are what will make money, but 3-sides, the songs that people do not buy the CD for, are also a culmination of an artists hard work. B-sides make an album good or bad, and consumers simply do not download B-sides.I fear that buying an entire album will become more rare as these new programs emerge that allow consumers to buy one song at a time, but the album will prevail. Newspapers and Magazines are now available online, but they still appear for retail in stores and by offline subscriptions. Online music purchasing shows no signs of dropping, and the consumers show no sign of listening to less music. The industry Just has to take the initiative to make the music more accessible to music listeners at a fairer price.